Sun Bancorp (SNBC) 8-K Results of Operations and Financial Condition

News Release

For Immediate Release

Contact:  Dan Chila, EVP, Chief Financial Officer (856) 691-7700

Sun Bancorp Reports Nine-Month Net Income Up 20.8%:

Third Quarter Net Income Advances 21.2%

Our mission is uncompromising…

          …to be the Premier Community Bank in every community we serve

VINELAND, NJ, October 15, 2007 – Sun Bancorp, Inc. (NASDAQ: SNBC) today reported net income of $5.9 million, or $.26 per share, up 21.2% for the quarter ended September 30, 2007, compared to net income of $4.9 million, or $.22 per share, for the third quarter 2006. The current quarter includes charges of approximately $435,000 (pre-tax), or $.01 per share. The charges represent approximately $250,000 to write-off unamortized issuance costs relating to the call of Sun Trust IV trust preferred securities and $185,000 related to several branch consolidations during the quarter.

For the nine months ended September 30, 2007, the Company reported net income of

$15.5 million, or $.68 per share, compared to $12.8 million, or $.58 per share, in the prior period – an increase of 20.8%. Net income for nine months ended September 30, 2007 includes net charges of approximately $2.1 million (pre-tax), or $.06 per share. The charges were a result of $2.4 million of severance related expenses, $791,000 write-off to unamortized issuance costs relating the call of Sun Trust III and Sun Trust IV trust preferred securities, $185,000 of branch consolidation costs, and an early extinguishment of debt charge of $124,000 for an FHLB borrowing prepayment, offset by a net gain of $1.4 million realized in the first quarter from the sale of branches. The prior year comparable period included severance related expenses of $500,000 (pre-tax), or $.02 per share.

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Sun Bancorp 3Q 2007 – page two

“Our financial performance during the third quarter and for the first nine months has been consistent and is tracking essentially as planned,” said Sidney R. Brown, acting president and chief executive officer of Sun Bancorp, Inc. “Loan production was steady with a solid pipeline, although prepayments still continue to have an impact primarily on real estate-related loans. Deposit growth continued to be steady as we managed deposit costs down, contributing to improvements in the net interest margin on a linked quarter and comparable year-to-date basis. We are also pleased to report that the efficiency ratio broke below the 70% level for the first time in recent history. Needless to say, we will be focused on continuing to improve it.”

“The board of directors of Sun Bancorp has appointed A. Bruce Dansbury as the company’s permanent chief operating officer,” added Brown. “He has been serving as executive vice president and interim chief operating officer, managing Sun National Bank’s daily operations and reporting to the board. In this role, he oversees the bank’s senior executive team and focuses on strategic and tactical decisions to continue delivering competitive products and services to Sun’s customer base. He also serves as the bank’s senior credit officer and chief credit policy officer, a position in which he is responsible for Sun’s credit products and policies, as well as providing senior-level review and management of Sun’s credit portfolio.”

The following is an overview of the key financial highlights for the quarter:

·   Total assets were $3.296 billion at September 30, 2007, compared to $3.264 billion at September 30, 2006 and $3.326 billion at June 30, 2007.

·   Total loans before allowance for loan losses were $2.473 billion at September 30, 2007, an increase of $121.6 million, or 5.2% over total loans at September 30, 2006. Linked quarter loan growth normalized for prepayments of about $25.0 million during the quarter approximated 2.1%. Total loan growth over year end 2006 normalized for prepayments and a branch sale approximates 10.0%.

·   Total non-performing assets of $22.2 million at September 30, 2007, or .90%, of total gross loans and real estate owned, compares to $16.5 million, or .67%, at June 30, 2007, and $15.2 million, or .64%, at December 31, 2006.  Non-accrual loans increased $3.7 million over linked quarter primarily as a result of a $2.5 million loan to a single borrower which is adequately collateralized.  Loans past due 90 days and accruing increased $1.7 million over linked quarter due primarily to two loans that are expected to be paid in full early in the fourth quarter.

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Sun Bancorp 3Q 2007 – page three

·   Total deposits were $2.682 billion at September 30, 2007, an increase of $45.3 million, or 1.7%, over deposits at September 30, 2006. Deposit growth normalized for branch sales was 3.2% for the same period. Average total deposits decreased over the linked quarter 1.5% primarily in certificates of deposit, which was consistent with the Company’s funding strategy.

·   Net interest income (tax-equivalent basis) of $25.8 million for the quarter compares to $25.2 million for the comparable prior year period and $23.9 million for the linked second quarter. The net interest margin reported of 3.49% for the quarter is normalized at 3.53% to reflect the $250,000 of unamortized issuance costs of redeemed trust preferred securities during the quarter. The linked quarter net interest margin reported at 3.19% is also normalized at 3.26% to reflect the $541,000 write-off of unamortized issuance costs of redeemed trust preferred securities during the quarter. The net interest margin reported for the nine months ended September 30, 2007 of 3.34% is normalized at 3.37% and compares to net interest margin of 3.46% for the comparable prior year period. The linked quarter margin improvement reflects a net spread increase of 30 basis points. This increase is due to an increase in the interest-earning assets yield of 15 basis points and a decrease of 15 basis points in the cost of interest-bearing liabilities.  

·   Total operating non-interest income for the quarter of $6.0 million increased $743,000, or 14.1%, over the comparable prior year period and decreased 4.5% over the linked quarter. The primary increase year-over-year was attributable to increases in service charges on deposit accounts of $397,000, or 12.5%.  The linked quarter decrease is primarily due to a reduction in derivative product volume resulting from lower market interest rates.

·   Total operating non-interest expenses for the nine months ended September 30, 2007 of $64.7 million decreased $2.3 million, or 3.4%, over the comparable prior year period. The primary decreases are salaries and employee benefits of $1.4 million, or 4.0%, and occupancy and equipment expenses of $717,000, or 4.9%. FDIC expense for the nine months ended September 30, 2007 increased $585,000 over the comparable prior year period due to the FDIC reform legislation effective for 2007. Total operating non-interest expenses for the quarter of $21.7 million increased $171,000, or .80%, over the third quarter 2006 and decreased $147,000 over the linked second quarter.

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Sun Bancorp 3Q 2007 – page four

The Company continues to focus on its profitability enhancement initiatives with particular emphasis on expense savings. The Company achieved a record low 69.4% efficiency ratio for the quarter, which compares to 71.3% for the prior year and 73.8% for the linked second quarter.

The Company will hold its regular quarterly conference call on Tuesday, October 16, 2007 at 11:30 a.m. (ET). Participants may call 1-800-391-2548 and give the verbal password: vi53385. The conference call also will be Web cast live through the Sun Bancorp Web site at www.sunnb.com. Participants are advised to call in or log on 10 minutes ahead of the scheduled start of the call. An Internet-based replay will be available at the Web site for two weeks following the call.

Sun Bancorp, Inc. is a multi-state bank holding company headquartered in Vineland, New Jersey. Its primary subsidiary is Sun National Bank, serving customers through more than 70 branch locations in Southern and Central New Jersey and New Castle County, Delaware. The Bank is an Equal Housing Lender and its deposits are insured up to the legal maximum by the Federal Deposit Insurance Corporation (FDIC). For more information about Sun National Bank and Sun Bancorp, Inc., visit www.sunnb.com.

The foregoing material contains forward-looking statements concerning the financial condition, results of operations and business of the Company. We caution that such statements are subject to a number of uncertainties and actual results could differ materially, and, therefore, readers should not place undue reliance on any forward-looking statements. The Company does not undertake, and specifically disclaims, any obligation to publicly release the results of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

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SUN BANCORP, INC. AND SUBSIDIARIES

FINANCIAL HIGHLIGHTS (unaudited)

(Dollars in thousands, except per share data)

	For the Three Months Ended						For the Nine Months Ended
	September 30,						September 30,
	2007			2006			2007			2006
Profitability for the period:
Net interest income	$	25,455		$	24,999		$	73,338		$	74,533
Provision for loan losses		1,260			1,317			2,960			2,817
Non-interest income		6,011			5,268			19,333			14,734
Non-interest expense		21,846			21,590			67,435			67,504
Income before income taxes		8,360			7,360			22,276			18,946
Net income	$	5,885		$	4,857		$	15,482		$	12,820
Financial ratios:
Return on average assets (1)		0.71	%		0.60	%		0.62	%		0.53	%
Return on average equity (1)		6.54	%		5.86	%		5.85	%		5.29	%
Return on average tangible equity (1),(2)		11.39	%		11.27	%		10.42	%		10.28	%
Net interest margin (1)		3.49	%		3.51	%		3.34	%		3.46	%
Efficiency ratio		69.43	%		71.33	%		72.77	%		75.62	%
Efficiency ratio, excluding non-operating income and non-operating expense (3)		68.30	%		71.00	%		70.56	%		75.16	%
Earnings per common share (4):
Basic	$	0.27		$	0.23		$	0.71		$	0.60
Diluted	$	0.26		$	0.22		$	0.68		$	0.58
Average equity to average assets		10.93	%		10.30	%		10.65	%		10.00	%

	September 30,						December 31,
	2007			2006			2006
At period-end:
Total assets	$	3,295,576		$	3,264,417		$	3,325,563
Total deposits		2,682,286			2,636,954			2,667,997
Loans receivable, net of allowance for loan losses		2,446,267			2,325,259			2,339,584
Investments		459,450			528,507			525,122
Borrowings		131,537			165,649			160,622
Junior subordinated debentures		97,941			108,250			108,250
Shareholders’ equity		361,645			335,849			342,227
Credit quality and capital ratios:
Allowance for loan losses to gross loans		1.07	%		1.10	%		1.08	%
Non-performing assets to gross loans and real estate owned		0.90	%		0.63	%		0.64	%
Allowance for loan losses to non-performing loans		127.11	%		182.37	%		175.50	%
Total capital (to risk-weighted assets) (5)
Sun Bancorp, Inc.		11.84	%		11.87	%		11.89	%
Sun National Bank		10.96	%		10.59	%		10.57	%
Tier 1 capital (to risk-weighted assets) (5)
Sun Bancorp, Inc.		10.87	%		10.87	%		10.91	%
Sun National Bank		9.99	%		9.58	%		9.59	%
Leverage ratio (5)
Sun Bancorp, Inc.		9.79	%		9.41	%		9.40	%
Sun National Bank		8.93	%		8.31	%		8.28	%
Book value	$	16.48		$	15.64		$	15.89
Tangible book value	$	9.53		$	8.27		$	8.62

(1) Amounts for the three and nine months ended are annualized.

(2) Return on average tangible equity is computed by dividing annualized net income for the period by average tangible equity. Average tangible equity equals average equity less average identifiable intangible assets and goodwill.

(3) Efficiency ratio, excluding non-operating income and non-operating expenses, is computed by dividing non-interest expense for the period by the summation of net interest income and non-interest income.  Net interest income for the three and nine months ended September 30, 2007 excludes the write-off of $250,000 and $791,000, respectively, of unamortized costs on redeemed trust preferred securities.  Non-interest expense for the three and nine months ended September 30, 2007 excludes $185,000 related to several branch consolidations.  In addition, non-interest expense for the nine months ended September 30, 2007 excludes $124,000 resulting from the early extinguishment of an FHLB borrowing and $2.4 million of severance related expenses as compared to $500,000 of severance related expenses for the same period in 2006. Non-interest expense for the three months ended September 30, 2006 excludes $100,000 of severance related expenses. Non-interest income for the nine months ended September 30, 2007 excludes a net gain of $1.4 million from the sale of branches.

(4) Data is adjusted for a 5% stock dividend declared in April 2007.

(5) September 30, 2007 capital ratios are estimated, subject to regulatory filings.

5

SUN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (unaudited)
(Dollars in thousands, except par value)
	September 30,			December 31,
	2007			2006
ASSETS
Cash and due from banks	$	68,044		$	74,991
Interest-earning bank balances		4,020			48,066
Federal funds sold		17,475			47,043
Cash and cash equivalents		89,539			170,100
Investment securities available for sale  (amortized cost - $425,121 and $488,007 at September 30, 2007 and December 31, 2006, respectively)		422,341			481,952
Investment securities held to maturity  (estimated fair value - $19,774 and $24,846 at September 30, 2007 and December 31, 2006, respectively)		20,202			25,441
Loans receivable (net of allowance for loan losses - $26,340 and $25,658 at September 30, 2007 and December 31, 2006, respectively)		2,446,267			2,339,584
Restricted equity investments		16,907			17,729
Bank properties and equipment, net		45,453			42,292
Real estate owned, net		1,449			600
Accrued interest receivable		18,300			17,419
Goodwill		127,935			128,117
Intangible assets, net		24,656			28,570
Deferred taxes, net		3,416			3,939
Bank owned life insurance		65,607			57,370
Other assets		13,504			12,450
Total assets	$	3,295,576		$	3,325,563
LIABILITIES & SHAREHOLDERS’ EQUITY
LIABILITIES
Deposits	$	2,682,286		$	2,667,997
Advances from the Federal Home Loan Bank (FHLB)		64,763			103,560
Securities sold under agreements to repurchase - FHLB		15,000			-
Securities sold under agreements to repurchase - customers		46,499			51,740
Obligation under capital lease		5,275			5,322
Junior subordinated debentures		97,941			108,250
Other liabilities		22,167			46,467
Total liabilities		2,933,931			2,983,336
SHAREHOLDERS’ EQUITY
Preferred stock, $1 par value, 1,000,000 shares authorized, none issued		-			-
Common stock, $1 par value, 50,000,000 shares authorized, 22,484,789 and 20,507,549 issued and outstanding September 30, 2007 and December 31, 2006, respectively		22,485			20,508
Additional paid-in capital		333,993			304,857
Retained earnings		16,468			20,794
Accumulated other comprehensive loss		(2,669	)		(3,932	)
Treasury stock at cost, 542,978 shares at September 30, 2007		(8,632	)		-
Total shareholders’ equity		361,645			342,227
Total liabilities and shareholders’ equity	$	3,295,576		$	3,325,563

6

SUN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(Dollars in thousands, except per share data)
	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
	2007		2006		2007		2006
INTEREST INCOME
Interest and fees on loans	$	44,262	$	41,576	$	130,776	$	117,885
Interest on taxable investment securities		4,401		4,351		13,435		14,943
Interest on non-taxable investment securities		699		450		2,090		1,047
Dividends on restricted equity investments		284		285		831		861
Interest on federal funds sold		376		166		1,639		678
Total interest income		50,022		46,828		148,771		135,414
INTEREST EXPENSE
Interest on deposits		21,130		17,479		64,041		47,090
Interest on borrowed funds		1,382		2,153		4,711		7,574
Interest on junior subordinated debentures		2,055		2,197		6,681		6,217
Total interest expense		24,567		21,829		75,433		60,881
Net interest income		25,455		24,999		73,338		74,533
PROVISION FOR LOAN LOSSES		1,260		1,317		2,960		2,817
Net interest income after provision for loan losses		24,195		23,682		70,378		71,716
NON-INTEREST INCOME
Service charges on deposit accounts		3,585		3,188		10,266		7,934
Other service charges		75		80		222		238
Net gain on sale of branches		-		-		1,443		-
Net gain on sale of bank property & equipment		-		-		12		-
Loss on sale of investment securities		-		-		-		(20	)
Gain on sale of loans		392		220		1,347		664
Net gain on derivative instruments		297		154		1,056		978
Other		1,662		1,626		4,987		4,940
Total non-interest income		6,011		5,268		19,333		14,734
NON-INTEREST EXPENSE
Salaries and employee benefits		10,816		10,650		34,428		34,237
Occupancy expense		2,932		2,982		8,661		8,775
Equipment expense		1,732		1,945		5,512		5,956
Amortization of intangible expenses		1,177		1,193		3,537		3,574
Data processing expense		1,063		1,226		3,171		3,388
Advertising expense		415		303		1,397		1,276
Other		3,711		3,291		10,729		10,298
Total non-interest expense		21,846		21,590		67,435		67,504
INCOME BEFORE INCOME TAXES		8,360		7,360		22,276		18,946
INCOME TAXES		2,475		2,503		6,794		6,126
NET INCOME	$	5,885	$	4,857	$	15,482	$	12,820
Basic earnings per share (1)	$	0.27	$	0.23	$	0.71	$	0.60
Diluted earnings per share (1)	$	0.26	$	0.22	$	0.68	$	0.58

(1) Data is adjusted for a 5% stock dividend declared in April 2007.  

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SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (unaudited)
(Dollars in thousands)
	2007			2007			2007			2006			2006
	Q3			Q2			Q1			Q4			Q3
Balance sheet at quarter end:
Loans:
Commercial and industrial	$	1,990,027		$	1,985,584		$	1,972,491		$	1,925,103		$	1,927,964
Home equity		258,991			245,283			234,982			232,321			222,473
Second mortgage		79,464			79,120			76,449			77,337			78,251
Residential real estate		54,601			47,101			38,798			38,418			33,460
Other		89,524			90,173			91,774			92,063			88,896
Total gross loans		2,472,607			2,447,261			2,414,494			2,365,242			2,351,044
Allowance for loan losses		(26,340	)		(26,079	)		(26,027	)		(25,658	)		(25,785	)
Net loans		2,446,267			2,421,182			2,388,467			2,339,584			2,325,259
Goodwill		127,935			127,936			127,936			128,117			128,351
Intangible assets, net		24,656			25,833			27,011			28,570			29,762
Total assets		3,295,576			3,324,633			3,326,681			3,325,563			3,264,417
Total deposits		2,682,286			2,725,747			2,694,304			2,667,997			2,636,954
Advances from the Federal Home Loan Bank (FHLB)		64,763			66,029			100,481			103,560			108,889
Federal funds purchased		-			-			1,500			-			-
Securities sold under agreements to repurchase – FHLB		15,000			-			-			-			-
Securities sold under agreements to repurchase – customers		46,499			44,612			42,511			51,740			51,423
Obligation under capital lease		5,275			5,291			5,307			5,322			5,337
Junior subordinated debentures		97,941			97,941			108,250			108,250			108,250
Total shareholders’ equity		361,645			355,758			348,595			342,227			335,849
Quarterly average balance sheet:
Loans:
Commercial and industrial	$	1,981,778		$	1,978,175		$	1,956,190		$	1,937,580		$	1,902,279
Home equity		250,474			240,150			233,837			229,002			213,888
Second mortgage		78,643			77,442			76,167			77,593			77,500
Residential real estate		49,635			39,193			37,710			35,323			27,443
Other		89,566			91,578			92,705			90,358			87,071
Total gross loans		2,450,096			2,426,538			2,396,609			2,369,856			2,308,181
Securities and other interest-earning assets		509,016			577,669			560,574			578,983			570,366
Total interest-earning assets		2,959,112			3,004,207			2,957,183			2,948,839			2,878,547
Total assets		3,292,687			3,341,506			3,302,913			3,288,123			3,216,807
Non-interest-bearing demand deposits		462,173			458,851			458,201			480,339			498,416
Total deposits		2,682,879			2,724,554			2,664,668			2,648,713			2,580,973
Total interest-bearing liabilities		2,445,187			2,501,896			2,466,678			2,445,320			2,370,114
Total shareholders' equity		359,949			353,280			344,717			339,839			331,282
Capital and credit quality measures:
Total Capital (to Risk-Weighted Assets)(1):
Sun Bancorp, Inc.		11.84	%		11.80	%		11.98	%		11.89	%		11.87	%
Sun National Bank		10.96	%		10.74	%		10.63	%		10.57	%		10.59	%
Tier I Capital (to Risk-Weighted Assets)(1):
Sun Bancorp, Inc.		10.87	%		10.83	%		11.00	%		10.91	%		10.87	%
Sun National Bank		9.99	%		9.77	%		9.65	%		9.59	%		9.58	%
Leverage Ratio(1):
Sun Bancorp, Inc.		9.79	%		9.46	%		9.57	%		9.40	%		9.41	%
Sun National Bank		8.93	%		8.54	%		8.40	%		8.28	%		8.31	%
Average equity to average assets		10.93	%		10.57	%		10.44	%		10.34	%		10.30	%
Allowance for loan losses to total gross loans		1.07	%		1.07	%		1.08	%		1.08	%		1.10	%
Non-performing assets to total gross loans and real estate owned		0.90	%		0.67	%		0.63	%		0.64	%		0.63	%
Allowance for loan losses to non-performing loans		127.11	%		169.98	%		177.14	%		175.50	%		182.37	%
Other data:
Net charge-offs	$	(999	)	$	(898	)	$	(381	)	$	(1,117	)	$	(212	)
Non-performing assets:
Non-accrual loans	$	18,157		$	14,505		$	14,147		$	14,322		$	14,073
Loans past due 90 days and accruing		2,565			837			546			298			66
Real estate owned, net		1,449			1,165			600			600			600
Total non-performing assets	$	22,171		$	16,507		$	15,293		$	15,220		$	14,739
(1) September 30, 2007 capital ratios are estimated, subject to regulatory filings.

8

SUN BANCORP, INC. AND SUBSIDIARIES
HISTORICAL TRENDS IN QUARTERLY FINANCIAL DATA (unaudited)
(Dollars in thousands, except per share data)
	2007			2007			2007			2006			2006
	Q3			Q2			Q1			Q4			Q3
Profitability for the quarter:
Tax-equivalent interest income	$	50,406		$	50,049		$	49,441		$	48,807		$	47,069
Interest expense		24,567			26,108			24,758			23,991			21,829
Tax-equivalent net interest income		25,839			23,941			24,683			24,816			25,240
Tax-equivalent adjustment		384			391			350			271			241
Provision for loan losses		1,260			950			750			990			1,317
Non-interest income, excluding loss on sale of investment securities, net gain on sale of branches and net gain (loss) on sale or disposal of bank property and equipment		6,011			6,293			5,574			5,343			5,268
Loss on sale of investment securities		-			-			-			(1	)		-
Net gain on sale of branches		-			-			1,443			-			-
Net gain (loss) on sale or disposal of bank property & equipment		-			12			-			(330	)		-
Non-interest expense, excluding amortization of intangible assets		20,669			20,840			22,389			20,696			20,397
Amortization of intangible assets		1,177			1,178			1,182			1,193			1,193
Income before income taxes		8,360			6,887			7,029			6,678			7,360
Income tax expense		2,475			1,975			2,344			2,224			2,503
Net income	$	5,885		$	4,912		$	4,685		$	4,454		$	4,857
Financial ratios:
Return on average assets(1)		0.71	%		0.59	%		0.57	%		0.54	%		0.60	%
Return on average equity(1)		6.54	%		5.56	%		5.44	%		5.24	%		5.86	%
Return on average tangible equity(1),(2)		11.39	%		9.88	%		9.93	%		9.78	%		11.27	%
Net interest margin(1)		3.49	%		3.19	%		3.34	%		3.37	%		3.51	%
Efficiency ratio		69.43	%		73.75	%		75.19	%		74.06	%		71.33	%
Efficiency ratio, excluding non-operating income and non-operating expense		68.30	%		71.77	%		71.07	%		70.78	%		71.00	%
Per share date:
Earnings per common share(3):
Basic	$	0.27		$	0.23		$	0.22		$	0.21		$	0.23
Diluted	$	0.26		$	0.22		$	0.21		$	0.20		$	0.22
Book value	$	16.48		$	16.21		$	16.16		$	15.89		$	15.64
Tangible book value	$	9.53		$	9.21		$	8.98		$	8.62		$	8.27
Average basic shares	22,045,407			21,738,367			21,547,912			21,504,499			21,452,781
Average diluted shares	22,735,620			22,670,769			22,596,591			22,602,237			22,451,890
Operating non-interest income:
Service charges on deposit accounts	$	3,585		$	3,552		$	3,129		$	3,183		$	3,188
Other service charges		75			75			72			73			80
Gain on sale of loans		392			447			508			463			220
Net gain on derivative instruments		297			525			234			200			154
Other		1,662			1,694			1,631			1,424			1,626
Total operating non-interest income		6,011			6,293			5,574			5,343			5,268
Non-operating income(4):
Loss on sale of investment securities		-			-			-			(1	)		-
Net gain on sale of branches		-			-			1,443			-			-
Net gain (loss) on sale or disposal of bank property & equipment		-			12			-			(330	)		-
Total non-operating income		-			12			1,443			(331	)		-
Total non-interest income	$	6,011		$	6,305		$	7,017		$	5,012		$	5,268
Operating non-interest expense:
Salaries and employee benefits	$	10,816		$	10,937		$	10,626		$	10,602		$	10,550
Occupancy expense		2,773			2,717			3,012			2,876			2,982
Equipment expense		1,732			1,829			1,951			1,960			1,945
Amortization of intangible assets		1,177			1,178			1,182			1,193			1,193
Data processing expense		1,063			1,100			1,008			895			1,226
Advertising expense		415			509			473			407			303
Other expenses		3,685			3,538			3,002			3,221			3,291
Total operating non-interest expense		21,661			21,808			21,254			21,154			21,490
Non-operating expense(4):
Lease buy-out expenses and other branch rationalization charges		185			-			-			495			-
Severance and other related expenses		-			86			2,317			240			100
Early extinguishment of borrowings		-			124			-			-			-
Total non-operating expense		185			210			2,317			735			100
Total non-interest expense	$	21,846		$	22,018		$	23,571		$	21,889		$	21,590
(1) Amounts are annualized.
(2) Return on average tangible equity is computed by dividing annualized net income for the period by average tangible equity. Average tangible equity equals average equity less average identifiable intangible assets and goodwill.
(3) Data is adjusted for a 5% stock dividend declared in April 2007.
(4) Amount consists of items which the Company believes are not a result of normal operations.

9

SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (unaudited)
(Dollars in thousands)
	For the Three Months Ended September 30, 2007							For the Three Months Ended September 30, 2006
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable(1),(2):
Commercial and industrial	$	1,981,778	$	36,136		7.29	%	$	1,902,279	$	34,339		7.22	%
Home equity		250,474		4,063		6.49			213,888		3,584		6.70
Second mortgage		78,643		1,289		6.56			77,500		1,237		6.38
Residential real estate		49,635		977		7.87			27,443		563		8.21
Other		89,566		1,797		8.03			87,071		1,853		8.51
Total loans receivable		2,450,096		44,262		7.23			2,308,181		41,576		7.20
Investment securities(3)		468,653		5,573		4.76			548,293		5,224		3.81
Interest-earning bank balances		10,881		195		7.17			8,348		103		4.94
Federal funds sold		29,482		376		5.10			13,725		166		4.84
Total interest-earning assets		2,959,112		50,406		6.81			2,878,547		47,069		6.54
Cash and due from banks		67,334							82,480
Bank properties and equipment, net		44,666							43,032
Goodwill and intangible assets, net		153,326							158,856
Other assets		68,249							53,892
Total non-interest-earning assets		333,575							338,260
Total assets	$	3,292,687						$	3,216,807
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	748,076		5,484		2.93	%	$	809,798		5,979		2.95	%
Savings deposits		466,427		3,509		3.01			352,027		1,618		1.84
Time deposits		1,006,203		12,137		4.82			920,732		9,882		4.29
Total interest-bearing deposit accounts		2,220,706		21,130		3.81			2,082,557		17,479		3.36
Borrowed money:
Federal funds purchased		2,028		30		5.92			4,549		67		5.89
Securities sold under agreements to repurchase – customers		41,868		469		4.48			45,117		515		4.57
FHLB advances		76,916		787		4.09			124,299		1,474		4.74
Junior subordinated debentures		98,389		2,055		8.35			108,250		2,197		8.12
Obligation under capital lease		5,280		96		7.27			5,342		97		7.26
Total borrowings		224,481		3,437		6.12			287,557		4,350		6.05
Total interest-bearing liabilities		2,445,187		24,567		4.02			2,370,114		21,829		3.68
Non-interest-bearing demand deposits		462,173							498,416
Other liabilities		25,378							16,995
Total non-interest-bearing liabilities		487,551							515,411
Total liabilities		2,932,738							2,885,525
Shareholders’ equity		359,949							331,282
Total liabilities and shareholders’ equity	$	3,292,687						$	3,216,807
Net interest income			$	25,839						$	25,240
Interest rate spread(4)						2.79	%						2.86	%
Net interest margin(5)						3.49	%						3.51	%
Ratio of average interest-earning assets to average interest-bearing liabilities						121.02	%						121.45	%
(1)  Average balances include non-accrual loans.
(2)  Loan fees are included in interest income and the amount is not material for this analysis.
(3)  Interest earned on non-taxable investment securities is shown on a tax equivalent basis assuming a 35% marginal federal tax rate for all periods.
(4)  Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(5)  Net interest margin represents net interest income as a percentage of average interest-earning assets.

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SUN BANCORP, INC. AND SUBSIDIARIES
AVERAGE BALANCE SHEETS (unaudited)
(Dollars in thousands)
	For the Nine Months Ended September 30, 2007							For the Nine Months Ended September 30, 2006
	Average		Income/		Yield/			Average		Income/		Yield/
	Balance		Expense		Cost			Balance		Expense		Cost
Interest-earning assets:
Loans receivable(1),(2):
Commercial and industrial	$	1,972,141	$	107,288		7.25	%	$	1,861,231	$	97,933		7.02	%
Home equity		241,548		11,833		6.53			192,997		9,503		6.57
Second mortgage		77,426		3,717		6.40			73,035		3,404		6.21
Residential real estate		42,223		2,481		7.83			28,559		1,773		8.28
Other		91,272		5,457		7.97			85,206		5,272		8.25
Total loans receivable		2,424,610		130,776		7.19			2,241,028		117,885		7.01
Investment securities(3)		491,980		16,909		4.58			622,732		17,035		3.65
Interest-earning bank balances		15,206		572		5.02			10,549		377		4.77
Federal funds sold		41,712		1,639		5.24			19,377		678		4.67
Total interest-earning assets		2,973,508		149,896		6.72			2,893,686		135,975		6.27
Cash and due from banks		70,578							80,609
Bank properties and equipment, net		43,350							43,316
Goodwill and intangible assets, net		154,567							156,872
Other assets		70,328							56,428
Total non-interest-earning assets		338,823							337,225
Total assets	$	3,312,331						$	3,230,911
Interest-bearing liabilities:
Interest-bearing deposit accounts:
Interest-bearing demand deposits	$	750,186		17,292		3.07	%	$	851,604		17,215		2.70	%
Savings deposits		457,982		10,110		2.94			356,177		4,268		1.60
Time deposits		1,022,843		36,639		4.78			864,380		25,607		3.95
Total interest-bearing deposit accounts		2,231,011		64,041		3.83			2,072,161		47,090		3.03
Borrowed money:
Federal funds purchased		982		43		5.84			5,667		229		5.39
Securities sold under agreements to repurchase – customers		43,390		1,495		4.59			42,346		1,343		4.23
FHLB advances		88,024		2,883		4.37			160,347		5,578		4.64
Junior subordinated debentures		102,472		6,681		8.69			106,437		6,217		7.79
Obligation under capital lease		5,296		290		7.30			5,366		424		7.29
Total borrowings		240,164		11,392		6.32			320,163		13,791		5.74
Total interest-bearing liabilities		2,471,175		75,433		4.07			2,392,324		60,881		3.39
Non-interest-bearing demand deposits		459,756							499,257
Other liabilities		28,696							16,242
Total non-interest-bearing liabilities		488,452							515,499
Total liabilities		2,959,627							2,907,823
Shareholders’ equity		352,704							323,088
Total liabilities and shareholders’ equity	$	3,312,331						$	3,230,911
Net interest income			$	74,463						$	75,094
Interest rate spread(4)						2.65	%						2.88	%
Net interest margin(5)						3.34	%						3.46	%
Ratio of average interest-earning assets to average interest-bearing liabilities						120.33	%						120.96	%
(1)  Average balances include non-accrual loans.
(2)  Loan fees are included in interest income and the amount is not material for this analysis.
(3)  Interest earned on non-taxable investment securities is shown on a tax equivalent basis assuming a 35% marginal federal tax rate for all periods.
(4)  Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.
(5)  Net interest margin represents net interest income as a percentage of average interest-earning assets.

11